Friedman: a man of two halves

Why, asks Chris Dillow, do we consider Milton Friedman a man of the Right? Dillow was thinking of such things as the earned-income tax credit and his opposition to conscription, but the question requires some unpacking. I don’t believe, for example, that his concern with liberty is incompatible with the Left. Neither is it impossible to imagine a leftwing critique based on ownership and control, rather than markets versus planning. I certainly agree with him on floating exchange rates, and on the legalisation of drugs.

But all these things – which so many people chose to pick up on when commemorating his death – were sideshows at best to his main achievement, monetarism. Like few other economic doctrines, monetarism was actually tested and met with shattering empirical refutation. The US Federal Reserve lasted three years before kicking the habit. In the UK, the experiment went on until 1986, by which time the government and the Bank had successively failed to control all the main monetary aggregates. Inflation had been forced down, but at the cost of high unemployment – not only is this what the Phillips curve suggested would happen, it arguably happened for the reasons a Keynesian would have predicted it would happen.

The British government applied fiscal and monetary tightening, raised the rate of interest, and permitted sterling to appreciate – and guess what, aggregate demand tanked, unemployment soared and prices eventually fell. Eventually, Alan Walters and Charles Goodhart convinced the government to ditch monetarism. Instead it chose an exchange-rate targeting regime, learnt the hard way just as it had with monetarism, and finally arrived at final-goal symmetrical inflation targeting. We live not in a monetarist world, but a New Keynesian one, where although the preferred policy tools are monetary, the thinking is demand-driven (something that has become much more important with the growth of customer credit).

There is part of your answer, then. In practice, Friedman’s doctrine put hordes of workers out of work, and we are still struggling with the social impact. Now the North Sea oil years are behind us, we shall miss the export industries that went to the wall in the combined sterling hike and credit squeeze. But what about the other side? Well, it’s very notable that none of the politicians he hawked his ideas to ever wanted to them put into practice, beyond simply squeezing the poor until the pips squeaked. Certainly, he thought it would be better to provide public services as cash or quasicash (vouchers) and let the market sort out how they are organised. But who ever saw any of the money? As with so many self-described libertarians, this was left as an exercise for the creative imagination. Rather than the NHS, let’s have fully-funded healthcare vouchers for all…and a pony.

There is, however, a seriously inspiring lesson ex Friedman, now we need new ideas. We urgently need some new ones – how, for example, to shape a politics against managerialism and elite consensus? How to assault inequality without Polly Toynbee-esque control bureaucracy? He was never elected to anything, and never owned much capital himself. He commanded only his pen, but changed the world. Ideas still count.

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